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Economists dismiss Australian saber rattling over US steel, aluminum tariffs

Australian economists are lining up to play down any significant impact from U.S. President Donald Trump's decision to put heavy tariffs on steel and aluminum imports, with the resources sector set to benefit from the growing list of trade deals in which Australia, China and the U.S. are involved.

Trump levied a 25% tariff on steel and a 10% tariff on aluminum imported from all countries except Mexico and Canada.

Trump tweeted March 9 that Australian Prime Minister Malcolm Turnbull was "committed to having a very fair and reciprocal military and trade relationship," and the pair were "working very quickly on a security agreement so we don't have to impose steel or aluminium tariffs on our ally, the great nation of Australia."

Turnbull replied to the tweet and thanked Trump for "confirming new tariffs won't have to be imposed on Australian steel and aluminium," and visited BlueScope Steel Ltd.'s Port Kembla steelworks March 12, where company CEO Mark Vassella said it had 3,000 jobs and A$3 billion in assets on the ground in North America.

The prime minister also said the same day that his government would not bring a complaint to the World Trade Organization about the Trump administration's new tariffs after Australian Trade Minister Steve Ciobo said the government would "look at" supporting the EU if it lodged such a dispute.

Westpac senior economist Justin Smirk said all that saber rattling was just "bluster" and the tariffs implemented thus far "in all honesty aren't really that much of a big deal in terms of impact on steel and global production."

He told S&P Global Market Intelligence that China was only really exporting its surpluses to the U.S., and even that was at "very low levels," so Australia's producers would only be providing for a niche market within China.

"Whether that market is impacted by these kinds of tariffs, my instinct would tell me you'd have to be particularly unlucky that the very, very small amount of steel that China sends to the U.S. impacts on your particular Chinese market you were exporting to," Smirk said.

"What's more important for our exporters is what's going on in China, because the bigger story unwinding is the slowdown in Chinese construction cycle, which is a more important overlay than a bit of fine tuning around tariffs."

Griffith University economics professor Tony Makin said in a piece published on news website The Conversation on March 9 that import tariffs on steel and aluminum would have "only a small impact" on Australia's economy, as it is not a large exporter of steel or aluminum, and what Australia does export to the U.S. is covered by a free trade agreement.

He also said a resulting trade war was unlikely.

The news of Australia being excluded from Trump's new tariffs came just after Australia signed the Trans-Pacific Partnership, or TPP, in Chile on March 8, which will eliminate more than 98% of tariffs in a trade zone with a GDP of A$13.7 trillion spanning the Americas and Asia.

The Minerals Council of Australia said in a policy brief that the TPP would see tariffs on iron ore, copper and nickel tariffs phased out, along with those for butanes, propane and LNG, with 20% of refined petroleum tariffs also phased out.

The brief claimed the TPP would boost Australia's GDP by A$18 billion, or 0.5%, and identified Australian market access gains in Mexico and Vietnam for mining and oil.

Trade data accessed by S&P Global Market Intelligence shows Vietnam's imports of Australian coal nearly doubled from A$264.9 million in 2015 to 2016 to A$572 million in 2016 to 2017, while ferrous and waste scrap imports from Australia doubled from A$66.6 million to A$126.2 million.

Smirk said that with TPP, China's One Belt, One Road initiative, and the world continuing to "quietly negotiate its way around to keep global trade operating, open and smooth," they should all combine to be "near-term positive for resource demand."